Jon Stewart’s claim that loans to Donald Trump meant fewer loans were available to other borrowers is has been called out as blatantly false.
Banks do not have a fixed pool of loan money that is diminished when making loans to customers.
“Money isn’t infinite. A loan that goes to the liar doesn’t go to someone who’s giving a more honest evaluation. So the system becomes incentivized for corruption,” Stewart said.
In reality, however, when a bank issues a loan, it creates new deposits through the act of lending, not subtracting from a set amount.
Well-capitalized banks are never constrained in their ability to issue new loans as long as regulatory capital requirements are met.
Individual loans do not subtract from what is available to other customers.
The key misconception is that banks operate like money vaults with finite funds, when in reality bank lending is deposit-creating and reserves can be borrowed between banks as needed.
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